Citiâs brokers have missed their targets for selling funds managed by US asset manager Legg Mason, triggering a renegotiation of a three-year distribution agreement that was part of their 2005 asset swap, according to people close to the talks.

The poor sales mean that Smith Barney, the US bank’s brokerage arm, is at risk of losing its exclusive right to distribute Legg Mason funds. Many former Legg Mason financial advisers who transferred to Citi two years ago have clients invested in the funds and this has prevented them from moving to other broker dealers that have no rights over them.

“Citi needs Legg more than Legg needs Citi because a lot of Legg’s financial advisers that went to Citi could go and set up their own businesses if the exclusive deal is terminated,” said one analyst.

The agreement for the 2005 asset swap included a review of performance after 18 months, with a “renegotiation if certain conditions aren’t met”, said an industry source.

The exclusive distribution agreement covers Bill Miller’s $21bn (€15bn) Legg Mason Value Trust. The fund, which until last year had beaten the S&P 500 for 15 consecutive years, is highly coveted by brokers.

Raymond “Chip” Mason, chairman and chief executive of Legg Mason, last week told analysts: “There has been a combination of lower flows than would have been expected” and lower performance than would have been expected.

Bill Katz, an analyst at Buckingham Research in New York, said: “There is value for Legg to diversify away from Citi but that’s not pragmatic while Bill Miller is underperforming.”

Miller’s fund returned 4.8% for the year to June 30, compared with almost 7% for the S&P 500.

“Citi/Smith Barney is a key distribution partner. As you would expect, we are working closely with them to promote a long-term relationship that meets each of our objectives,” said a spokeswoman for Legg Mason.